As a business owner, the easiest way to reduce your taxes is through small business tax deductions.
Yet, 90% of business owners overpay their taxes because they fail to write-off expenses they already pay for.
Why? Because many small business owners (and sadly, accountants too) are not fully aware of the various tax deductions available.
In fact, most do not even know what tax deductions are and the role it plays in reducing your taxes.
In this post, we guide you through everything you need to know about business tax write-offs and the top 30 tax deductions for small business owners.
What is a small business tax deduction?
Also known as a tax write-off, the tax law defines a tax deduction as “any ordinary and necessary expense” incurred to carry on any trade or business.
Eligible expenses are deducted from the business income reported on your tax return, resulting in lower tax liability.
The tax law does not define what is meant by an ordinary and necessary expense, leaving the door open for interpretation. The IRS provides some clarity in various publications but the definition remains wide-ranging.
As a result, the broad definition of small business tax deductions makes it possible for businesses to deduct almost any expense as long as it meets the criteria.
Yet the vast majority of entrepreneurs are not maximizing their deductions, resulting in millions in overpaid taxes.
To help you avoid missed tax deductions (and more taxes), start with the top 30 small business write-offs below.
Table of Contents
#1: Home Office Deduction
The home-office deductions allows you to deduct a portion of your home expenses as a business expense.
If you do any work from home for your business, you may qualify for this deduction. The amount of your deduction is based on the percentage of space in your home that is used exclusively for business.
If you qualify, you can deduct a portion of the following home expenses:
- Mortgage interest
- Property taxes
- Home insurance
- HOA fees
To illustrate, let’s look a very simple example.
Let’s assume that your annual home expenses will be $100,000 this year.
If you use 20% of your home exclusively for business, you could write-off $20,000 of your home expenses.
It’s that simple. Yet, 90% of small business owners miss this deduction because they are unaware of it, or they are afraid to use it in fear of the IRS.
However, this deduction is completely valid per the tax code. In fact, the IRS provides the necessary guidance on when and how you can take the deduction.
If you need assistance, you may want to consider consulting a tax professional to determine if you qualify. They can advise the best calculation method for maximal, legal deductions.
If you to pay the least amount of taxes, you should pursue every tax reduction opportunity you deserve. The home office deduction is a low-hanging fruit for substantial tax savings.
#2: Self-Employment Tax Deduction (And Avoidance)
Self-employment tax is a 15.3% tax that is used to fund Social Security and Medicare programs.
Sole proprietorships, partnerships, and limited liability companies are subject to this tax by default.
Self-employment tax is twice as much as employees who pay social security and medicare tax through their employers.
This is because both, employees AND employers pay into these programs. So when you are “self-employed” you have to pay both sides of this tax.
As an employee, you only pay 7.65% of your wages in social security and medicare tax. Then, your employer is required to pay another 7.65% on the wages they pay you.
Because of this, self-employment tax can be burdensome. However, you can reduce your self-employment taxes in two ways:
- The amount you pay in self-employment tax is deductible at tax time. For high earners, this can equal thousands in tax savings every year. If you pay this tax, you would do yourself a disservice to not deduct it.
- Choose a business structure that avoids self-employment tax altogether. C-Corporations and S-Corporations do not pay this tax at all, but they are subject to other tax rules.
Changing your business structure will come with more requirements, like payroll and separate tax forms. Before making any change, you should weigh the pros (tax savings) against the cons (costs, time, etc.).
Consult an expert tax coach to analyze the options side-by-side. They can provide a customized comparison showing which approach to self-employment tax minimizes your obligations legally.
#3: Depreciation Deduction (Sec. 179)
If you buy any tangible assets for your business, you may be able to deduct a large portion of the cost in the year you made the purchase.
Typically, the cost of purchased assets are spread over several years due to IRS depreciation rules.
However, Section 179 allows you to supersize deduction on asset purchases.
This tax code provision lets you deduct up to the 100% of the cost of tangible assets.
But what are tangible assets?
Tangible assets are assets that can be physically touched.
Examples of tangible assets include equipment, machinery, furniture, vehicles, or other types of property.
And if you buy tangible assets for your business, you write-off a sizable portion of the cost.
Let’s illustrate this concept with a very simple example:
Let’s say you buy $100,000 of new equipment with a 5 year lifespan.
Typically you could deduct $20,000 each year over 5 years. Because normally, you are only able to deduct a percentage annually based on the asset’s useful lifespan.
But with Section 179, you could have deducted the entire $100,000 upfront in Year 1.
It’s that simple. This one tax provision just increased your tax deduction from $20,000 to $100,000!
Which would save you tens of thousands of dollar in taxes.
#4: 20% Pass-Through Deduction (QBI)
The pass-through deduction allows eligible small business owners to deduct up to 20% of their net business income.
Let’s say your business nets $100,000 in income.
If you take the 20% QBI deduction, your taxable income would decrease to $80,000.
At a 25% tax rate, you would just saved $5,000 in taxes from this one deduction!
How To Qualify:
In order to qualify for the pass-through deduction, you must be a “qualified” trade or business.
The IRS exclude “specified services” from the deduction, which they define as businesses that rely on the reputation of the owner.
This would exclude many health, finance, law, and accounting professionals from qualifying.
But when reading the fine print, many service businesses still fit within exceptions to claim the QBI.
For example, there are income limitations that would allow your business to qualify for the deduction EVEN if you operate as a specified service business.
Most CPAs and tax professionals don’t know this but it’s literally in the QBI instructions.
The key is ensuring your business structure and revenue sources fit within the QBI deduction rules. Or leverage exceptions if you’re in a specified service area.
Many pass-through entities qualify, but you may want to consult a tax pro to evaluate eligibility.
However, with proper planning you can utilize this deduction to legally trim your tax obligations big time.
#5: Vehicle Tax Deduction
If you use a vehicle for your business, then you can use the vehicle tax deduction to reduce your taxes.
The IRS gives you two options to claim vehicle deductions:
- Business Mileage: You can deduct each business mile you drove with the IRS standard mileage rate.
- Actual Vehicle Expenses: You can deduct a percentage of specific costs like gas, repairs, insurance, lease payments, maintenance, registration fees, etc.
Vehicles over 6,000 pounds may also qualify for bonus depreciation, which may allow you deduct a larger portion of the vehicle cost.
Regardless of the method you use to calculate your tax deduction, you are required to maintain documentation for the business use of your vehicle.
The IRS requires you to keep track how you are using your vehicle for business purposes. You should log the dates, destinations, miles driven, and the business purpose associated with each business trip.
There are ways to simply this process. Don’t hesitate to talk to a small business CPA. They can help you determine an optimal approach to legally maximizing your deductions.
#6: Travel Expense Deduction
When you travel for business purposes, direct business expenses are fully tax deductible. This includes flights, hotels, meals, and transportation.
Every deductible expense must relate specifically to the business purpose of the trip.
Examples of business purposes for travel include travel to board meetings, conferences, seminars, or meetings with business contacts.
Let’s illustrate this with a simple example:
Let’s say you’re traveling to New York City for a 5-day conference, but you choose to stay in the city for 10 days total to mix business and pleasure.
Because the business event was for only 5 days, you would not be able to deduct expenses connected to the days of personal leisure.
However, for the 5-day conference, you could deduct:
- Airfare to and from NYC
- 5 days of hotel costs
- Meals and local transportation costs incurred during the 5 conference days
A skilled tax planner may be able to help you plan your business travel days to write-off up to 100% of your costs.
#7: Business Meals Deduction
Having lunch with a business contact over dinner? If so, you can deduct a significant portion of these meal costs under your business.
The key is ensuring the meals involve:
- At least one business contact: such as a business partner, client, vendor, or prospect.
- Business discussions and topics: the topic and conversions should be conducted in the pursuit of business income.
Typically, you can deduct 50% of these meal expenses. Additionally, meals during business travel are usually 100% deductible.
However, for all business meals, you must maintain proper documentation. You should keep up with your receipts, and make note of the business contacts present and the business purpose of the meal.
With proper documentation, this deduction can yield substantial tax savings for your company.
#8: Hiring Your Children
Hiring your kids as a tax strategy can help you in two ways.
First, you can write-off the payment you make to them which reduces your taxes.
Secondly, the income can be tax-free to them if you pay them less than the standard deduction.
The standard deduction is around $14,000 so if you paid them up to that amount, they’d pay no income tax when they file their tax return.
By doing this, you are effectively shifting income from your (higher) tax bracket to their lower tax bracket.
You may benefit from paying your children beyond the standard deduction amount to shift more of your income into their lower tax bracket.
However, your children will need to be doing legitimate work for the compensation your business pays them. Be sure to get a CPA involved to carefully plan around write-offs like this.
#9: Employee Salaries and Contract Labor
Every dollar paid to anyone providing services for your business, whether employees or contractors, qualifies as a tax deduction for your business.
All you have to do is properly document and record your personnel expenses.
- For employees, collect W-4 forms to deduct W-2 wages.
- For contractors, collect W-9 forms. Then issue 1099s at year-end to deduct their services.
Having this documentation is critical to legitimize writing off labor costs. Don’t miss out on rightful savings due to missing forms.
Even one-time contractor work warrants proper documentation.
For example, if you hire someone just to build your website, collect a W-9 and issue a 1099 to deduct the cost of their services.
Try to get in the habit of collecting W-4s and W-9s whenever you utilize personnel. A little diligence can go a long way to legitimately reducing your tax burden.
#10: Employee Benefit Programs
Let’s face it. Employees are expensive. Especially the good ones.
And great employees expect benefits.
Fortunately, the expenses you incur to provide employee benefits are tax deductible.
This includes health benefits, educational assistance, flexible spending arrangements (FSA), achievement awards, and so much more.
Additionally, you may qualify for tax credits for offering certain types of employee benefits.
For example, there is the Small Business Health Care Tax Credit, which benefits small businesses that provide health insurance benefits.
There is also the Retirement Plans Startup Costs Tax Credit, which benefits small businesses that provide retirement benefits.
If you qualify, you may able to take advantage of both, the tax deduction (reduces your taxable income) and the tax credit (directly reduces your taxes).
Be sure to track your expenses diligently when launching so you can fully capitalize on these starter deductions.
#11: 401K Contributions
You receive a dollar for dollar tax write-off for every dollar you contribute to a traditional retirement account.
And as a business owner, you have the ability to make very large contributions to your retirement, because you can contribute as both, an employer and an employee of your business.
As of 2024, you are able to deduct up to:
- Up to $69,000 of contributions made to a Traditional SEP IRA or Solo 401K
- Up to $7,000 of contributions made to Traditional IRA
This equates to over $76,000 in additional tax write-offs which can result in tens of thousands of dollars in tax savings.
In addition to this, you can contribute twice as much to these types of accounts by incorporating your spouse in the business.
#12: Retirement Pension Contributions
If you wish to go above and beyond the limits of a 401K plan, you can set up a pension plan through your business.
A pension plan allows business owners to contribute up to $100,000 to $300,000 to their retirement in a single tax year and deduct the entire contribution.
This can save some business owners over $100,000 in taxes.
If interested, look into defined benefit or cash balance plans. These plans can be a great way to write-off more of your income while building a nice nest egg for retirement.
#13: Health Savings Account
A health savings account is another tax-deferred account that gives you a tax write-off in exchange for contributions.
Whether you set an HSA up as individual or through your business, the contributions you make are tax deductible.
Unlike retirement accounts, you can use your HSA to pay for various health expenses, like doctor visits, dentist visits, gym memberships, massages, chiropractic care, and much more.
And when you use the account to pay for these things, the funds are not taxed.
Therefore, you are effectively writing off your health expenses when you make qualified purchases through an HSA.
#14: Health Insurance Premiums
Most small business owners pay for health insurance. Very few deduct their health insurance expense.
Section 162(I) of the tax code allows self-employed individuals to deduct their health insurance premiums.
You can write-off 100% of the expense, even if your family is included on the health insurance plan.
It doesn’t matter if the plan is in your spouse’s name. As long as you are covered by the plan as well, you can write-off the portion your household pays.
How you claim the deduction depends on your structure:
- Sole proprietors, partnerships, and LLCs may pay premiums directly from their business account.
- S-Corps and C-Corps may create a reimbursement plan to refund owners for premiums.
It is very important to properly apply any deductions to stay compliant. Consult a CPA where appropriate.
#15: Business Insurance Deduction
You can deduct various types of business insurance if it is necessary for your business to carry on its operations.
Whether it’s general liability insurance, property insurance, errors and omissions insurance, or another type of business insurance, it is likely deductible.
This also includes various insurance policies that you may offer to your employees, which may include unemployment insurance, workers compensation, or health insurance plans.
The cost of those insurance policies are fully deductible as long as it is related to your business.
#16: Advertising Expenses
The ability to write-off your advertising expenses is one of the best tax breaks for small business owners.
The money you spend to promote your business is fully tax deductible and can be used to offset income on your tax return.
In fact, some business owners use this deduction to justify aggressive advertising spend.
This benefits them in 2 ways:
- They grow their business through more brand awareness
- They pay less taxes by deducting their advertising expense
Advertising expenses may include digital advertising, like Facebook or Google advertising.
It may also include print advertising, like newspapers, billboards, business cards, and so on.
Ultimately, any expense related to promoting your business may be deductible as an advertising expense.
#17: Education Expenses
Running a successful business requires adequate skills, training, and education.
Therefore, the education expenses you incur to make your business more valuable are tax deductible.
This includes expenses incurred on courses, seminars, conferences, trade publications, and books.
This may even include the cost of certifications, diplomas, degrees, licenses, or other professional requirements that are necessary for operating your trade or business.
If you are required to have a specific designation to operate a business, then you should likely seek to deduct the expense on your tax return.
For example, a commercial truck driver may be able to deduct the cost associated with obtaining its Commercial Driver’s License.
A Doctor might be able to deduct the cost of their continuing education to keep their license active.
A CPA might be able to deduct the fee to renew their professional license.
And so on.
#18: Cell Phone Deduction
If you use you a cell phone (or any telephone) for business, you can deduct a portion of the expenses tied to business needs.
Here are examples of expenses you can deduct:
- The device itself
- Your cell service plan
- Extra storage
- Required apps that you pay for
For mixed personal and business use, deduct just the business percentage.
Here is a simple example:
Let’s say you bought a new iPhone, pay for iCloud storage, and have Sprint as your carrier.
If you estimate that you use the phone 50% of the time for business, you could deduct 50% of those expenses.
Don’t overlook the many legitimate write-offs like this that can reduce your taxable income (and taxes).
#19: Rent or Lease Expense
If you rent any space for your business, it is tax deductible.
Whether it is an office space, warehouse, or storage space, the expense is deductible if it is necessary for your business.
It can be as formal as a commercial office, or as informal as a shed or garage in someone’s back yard.
Any rental fee you incur in connection to your business is tax deductible.
#20: Renting Your Personal Residence (Augusta Rule)
This write-off is formally referred to as the Augusta Strategy.
As a business owner, you can rent your personal residence to your business.
When you do, two things happen:
1) The money the business pays you can be used a tax write-off.
2) The money you receive from the business is tax-free to you, as long as you do not do this for more than 14 days in any tax year
Now there has to be a business purpose for the expense.
Typical use cases are board meetings, company events, employee training, video or photoshoots, or other events that require a physical meeting location.
There are rules that must be met to successfully implement the Augusta Strategy, so be sure to get tax planner involved if this is something of interest to you.
#21: Utilities Expense
Similar to rentals, you can also deduct utility expenses incurred in connection to your business rental.
This may include Wi-Fi expenses, electricity, gas, water, trash, and other utility expenses you pay for your business.
Be sure to pay your utility expenses with your business bank account, and keep track of receipts, to make sure you do not miss any part of this deduction.
#22: Office and Technology Expenses
As a business, you can deduct 100% of direct office, administrative, and technology expenses required to operate. This includes:
- Computers and accessories
- Printers, paper, pens, notebooks
- Accounting software
- Payment processing services
- Business apps and tools
- Websites and hosting
- Office furniture
- Administrative supplies
Basically, if you need it to administer and run your company day-to-day, it’s deductible.
These expenses can add up to substantial tax write-offs to reduce your taxes.
In order to maximize your tax savings, be meticulous about tracking expenses in these categories. A single missed expense can result in you paying more taxes.
#23: Repairs and Maintenance
If you spend money to repair or maintain your business property, the cost may be deductible.
Your deduction depends on if the expense would be considered a repair or a renovation.
Repairs are fully deductible. Renovations are partially deductible and must be depreciated over time.
So what is the difference?
Repair expenses must be incurred to keep your property running in normal operating condition.
Renovation improves increases the value of the property.
For example, if you have a showroom, you may recondition your floors to upkeep the appearance of the location. This would be a repair.
However, if you replaced the existing floors with new floors, then this would be considered a renovation.
Be sure to talk to your CPA about the difference and maximize your tax deductions accordingly.
#24: Legal and Professional Service Fees
Any professional service fees you incur that are necessary for your business may be used as a tax deduction.
This includes legal, accounting, and bookkeeping services, which are critical to the success of any small business.
This may also include other types of professional services, such as advertising agencies, insurance brokers, call centers, or other professional services that are common for the nature of your business.
To successfully deduct these types of expenses, you may need to report the total amount of fees to the IRS via a 1099 form.
According to the IRS, you must issue a 1099 to any person (or company) that you pay over $600.
You can easily keep track of payments and issue 1099 forms through an accounting system like QuickBooks, for example.
#25: Bank Fees
It is no secret that your business should have a bank account that is separate from your personal account.
However, many business owners forget to deduct the bank fees they incur from their financial institution.
Not only can you deduct your monthly maintenance fees, but you can also write-off any fees you incur for wire transfers, ACHs, overdraft fees, late fees, and more.
Virtually any fee that your bank charges you to operate your business bank account can be deducted.
#26: Merchant Processing Fees
Only a business owner can understand how merchant processing fees add up over time.
Yet, many business owners are unaware of their exact payment processing fee and therefore, fail to deduct the entire expense.
The expense is often hidden. Their fees are often taken from your deposits, which may make it harder to keep up with.
Don’t allow this to be you.
Fees from platforms like Stripe, Square, PayPal, QuickBooks, and other platforms are tax deductible.
Simply request an annual statement of their fees to make sure you include the expense as a tax deduction on your tax return.
#27: Business Loan Interest Deduction
If your business has loans or financing, the interest payments are deductible expenses. This includes:
- Mortgage interest
- Business loan interest
- Credit card interest
Important: Your loan principal payments are NOT deductible.
Principal isn’t deductible, only the interest portion is an expense.
Here is a simple example:
Let’s say your office building has a $2,000 monthly mortgage payment. Of that, $520 is interest.
The deductible portion of your payment would be $520 since that is the only portion that represents interests.
Don’t let this dissuade you from deducting your interest payments. With good record keeping, interest can yield substantial annual deductions.
#28: Startup and Organization Cost Deduction
If you are planning to start a business, or recently started one, you can use the Startup and Organization Deduction to reduce your taxes.
This tax deduction allows you write-off a portion of your startup and organizational costs.
At the time of this post, this deduction allows you to write-off:
- Up to $5,000 in startup expenses. This covers any costs tied to launching your business licenses, market research, logo design, etc.
- Up to $5,000 in organizational costs. This includes legal fees for structuring your entity as an LLC, S-corp, etc.
That’s potentially $10,000 in write-offs that can lower your taxable income and resulting taxes.
Here is a simple example to illustrate this deduction:
Let’s say you spent $3,000 on market research and branding for your new business. Then, you paid $1,500 to form an LLC.
In this case, you could deduct the total of $4,500 in expenses.
This deductions can save new entrepreneurs thousands in Year 1 taxes.
#29: Cost of Goods Sold
If your business creates or purchase products for resale, you can deduct the cost of these products.
Typically, the costs are deductible once the products are sold. Hence, the name “cost of goods sold”.
The type of expenses that can be deducted, once sold, include raw materials, storage, direct labor, factory overhead, and related costs.
While the rules are straightforward, calculating cost of goods sold can be complex for some business owners.
It involves valuing your inventory at the beginning and end of each tax year, and keeping up with how much inventory was purchased throughout the year.
Therefore, if you wish to deduct cost of goods sold, make sure you have a good recordkeeping system that tracks this.
#30: Charitable Contributions (Sponsorships)
Typically, business charitable contributions are not tax deductible but they can be under certain circumstances.
First, if your business is making a cash payment to an organization that is directly related to your business, the payment may be tax deductible.
For example, if you sell athletic gear and you donate money to local race, such as a 5K, that expense may be tax deductible.
Secondly, your business may be able to deduct charitable contributions if it is incorporated as a C-Corporation, which is subject to limitations.
If you are unable to donate to charity under the circumstances above, your best option would be to deduct them with the Itemized Tax Deduction which can be taken as an Individual.
Still, in that case, you would have to weigh the benefit against simply taking the Standard Deduction as an individual.
#31: Tax Preparation Fees
The cost of hiring a tax professional, such as a CPA, is fully deductible as a business expense.
Most business owners desire to reduce their taxes by as much as possible. Therefore, in that pursuit it only makes sense to hire the best tax professional for the job.
And the best person for the job may not be the cheapest, but this tax deduction benefits you in 2 ways:
- You get a tax deduction for hiring a tax professional
- The tax professional will find more tax deductions for you (ideally)
You basically get a tax deduction for finding more tax deductions, if you follow the logic.
And if you don’t, just know that your tax prep fees are tax deductible.
#32: Business Taxes
The IRS allows you to deduct various taxes that are directly attributable to your trade or business.
This includes payroll taxes, real estate taxes, and certain types of federal and state income tax.
However, you should note that any tax that you pay on your individual tax return is not deductible as a business expense.
This includes your individual federal, state, and local income taxes. They are not deductible because these taxes are viewed as personal expenses (and not a business expense).
However, taxes that are owed from your business (and not the owner) are tax deductible.
#33: The Deductions You’re Not Creating
The deductions covered so far are related to expenses you already incur.
However, you can create deductions through strategic spending.
For example, reinvesting funds into business growth opportunities can reduce your taxes while expanding your business. It’s a win-win.
You can also target tax-advantaged investments like real estate and oil/gas partnerships to generate losses than offset other income.
Charitable giving presents more options too. For example, contributing to a donor-advised fund gives you an immediate tax deduction immediately but allows you distribute funds to charities at a later date.
Careful and strategic planning is key. Be proactive and explore every angle through your business activities and investments.
#34: Everything Else (Section 162 Expenses)
Curious to know if you can deduct an expense that is not covered? Don’t worry… there’s still a good chance that you can deduct it.
Remember, the IRS sets broad rules to what expenses are deductible.
Generally, you can deduct any ordinary and necessary expense tied to running your business, even if it falls outside conventional categories.
What does that mean?
- Ordinary – Costs commonly accepted and incurred in your industry.
- Necessary – Expenses helpful and appropriate for your business activities.
You just need to make sure you understand the rules behind each deduction.
Then, you can apply them strategically to your unique situation to save big money every year.
Significant savings await those who think broadly about what expenses qualify. To attain those savings, consider applying to work with one of our Tax CPAs today.